Harley Davidson 2007 Annual Report Download - page 3

Harley-Davidson, Inc. President
and Chief Executive Officer, Jim Ziemer,
on a ride to Fairbanks, Alaska
for the 2007 Alaska State H.O.G. Rally.
Harley-Davidson had a challenging year
in
2007 as growing troubles in the U.S.
economy increasingly impacted major dis-
cretionary purchases like motorcycles.
In that environment, Harley-Davidson
full-year revenue and earnings declined
year-over-year, as did the number of new
Harley-Davidson
®
motorcycles our U.S.
dealers sold at retail. Even so, except for
2006 , it was the biggest year in our history
for revenue, earnings and worldwide retail
motorcycle sales. Revenue for the year was
$5.73 billion, compared to $5.80 billion in
2006 and $5.34 billion in 2005 . Dealers sold
337,774 new Harley-Davidson motorcycles
worldwide in
2007 , compared to 343,981 in
2006 and 317,169 in 2005 . Diluted earnings
per share were
$3.74 , compared to $3.93 in
2006 and $3.41 in 2005 .
A major factor affecting revenue and
earnings in
2007 was our decision to reduce
fourth-quarter motorcycle shipments, in
keeping with our commitment to ship fewer
Harley-Davidson motorcycles than we antic-
ipated dealers would sell at retail worldwide.
For the full year
2007 , we shipped 330,619
Harley-Davidson motorcycles, which was
5.3% less than the prior year.
Our decision to reduce shipments under-
scores the priority we place on brand strength.
Our strong brand is the backbone of our
business and the value proposition of our
motorcycles. We will continue to be careful
guardians of the brand by managing the
relationship between supply and demand
and managing the business for the long term.
Turning to Harley-Davidson Financial
Services, we all know what a challenging
year
2007 was in the consumer credit
industry. However,
HDFS is a premier finan-
cial services company with a reputation
for a disciplined and prudent approach to
lending, and for the full year,
HDFS realized
a
0.7% increase in operating income com-
pared to
2006 . HDFS also grew its market
share for loans for new Harley-Davidson
motorcycles in the
U.S. to 55% in 2007 ,
up from
49% in 2006 . HDFS continues
to serve a broad range of customers,
lending across all credit tiers and appro-
priately balancing for risk and reward.
And although
HDFS was not immune to
some of the pressures in the credit
markets in
2007 , its results demonstrate its
understanding of how to effectively serve the
needs of dealers and their retail customers.
INTERNATIONAL STRENGTH A major bright
spot in
2007 was the continued success of
Harley-Davidson on the international stage,
where dealers’ retail sales grew
13.7%
compared to the prior year. Our international
strength is the result of a well-orchestrated,
strategic approach we embarked on a num-
ber of years ago to grow Harley-Davidson’s
international retail motorcycle sales faster
than
U.S. sales. Our international strategy has
resulted in sound investments in marketing
and products that are attuned to local cus-
tomer preferences, improved distribution at
the wholesale level, dealer network strength,
and assuming ownership and management
of business operations in an increasing
number of key markets.
Perhaps more than anything, our inter-
national growth is a sign of the incredible
strength of the Harley-Davidson brand
abroad
— and the ability of the brand to
transcend cultures and languages. As you’ll
see from the examples in this annual report,
Harley-Davidson consistently delivers
culturally-relevant experiences in the
72
international countries in which we sell our
motorcycles. Our international employees
—
the vast majority of whom are local market
nationals
—
and our dealers understand the
challenges and opportunities and how
to fine tune our approach to the cultural
expectations of each market.
Going forward, we believe international
markets will continue to be an area of
strength and we are continuing to refine our
business and marketing strategies for
Europe, Asia, Australia, Latin America and
Africa to leverage those opportunities.
THE ROAD AHEAD Looking ahead, we
anticipate that weakness in the
U.S. econ-
omy will continue to make
2008 challenging
for Harley-Davidson and we have again
committed to ship fewer Harley-Davidson
motorcycles than we expect dealers to sell
worldwide. At this time, we believe this is
the right course for the brand, our business,
for dealers and for customers.
At the same time, we continue to devote
major resources to drive our business for-
ward, investing heavily in marketing, product
“ OUR STRONG BRAND IS THE BACKBONE OF OUR
BUSINESS AND THE VALUE PROPOSITION OF OUR
MOTORCYCLES. WE WILL CONTINUE TO BE CAREFUL
GUARDIANS OF THE BRAND…BY MANAGING THE
BUSINESS FOR THE LONG TERM.”
DEAR FELLOW SHAREHOLDERS:
2007 WAS A LOT LIKE THAT MOTORCYCLE TRIP YOU TAKE IN EARLY SUMMER IN THE MOUNTAINS
—
THE ONE WHERE THE FORECAST
IS FOR BLUE SKIES AND DRY ROADS AND, ALL OF A SUDDEN AT
9,500 FEET OF ELEVATION, YOU FIND YOURSELF IN THE MIDDLE OF A
SNOWSTORM. YOU KNOW THAT WITH CAUTION AND PERSEVERANCE YOU’LL REACH YOUR DESTINATION. BUT IN THE MEANTIME, IT’S
SURE TOUGH TO GET MUCH TRACTION AND IT MAKES FOR SOME UNCOMFORTABLE RIDING!
FINANCIAL HIGHLIGHTS
development and our people. We believe
there will be solid opportunities to grow when
the
U.S. economy rebounds and we intend
to be well-positioned to take advantage of
those opportunities.
CUSTOMER FOCUS Customer relationships,
market-defining products and extraordinary
customer experiences are the not-so secrets
to our success. We intend to keep it that
way through a continued focus on these
strengths, connecting with core customers,
crossover prospects and non-riders like never
before, and staying ten steps ahead of our
competitors. From unmatched events like
our upcoming
105 th Anniversary Celebration
or an exclusive Nightster
®
motorcycle
launch party for young adults to our Dark
Custom™ family of motorcycles (check them
out at www.Harley-Davidson.com), we con-
tinue to make our brand more relevant to
more people.
LEADERSHIP FOCUS Harley-Davidson has
achieved its success over the years through
the talent and dedication of our employees,
growing the Company from less than
$2 billion
in revenue a decade ago to nearly
$6 billion
in
2007 . Today, more than ever, having cap-
able leaders is crucial to our success.
We are currently in the process of
transforming our internal culture to maximize
the talent and contributions of our existing
workforce, making leadership development
a key priority. And we’re bringing in new
people for the fresh perspectives and
capabilities they can provide.
I want to make sure that our people
—
and
especially our leaders at all levels of the
organization
—
are well-prepared to meet the
challenges we face and to make the most of
Harley-Davidson’s many business opportu-
nities. My goal is to make sure that we are
world class when it comes to leadership,
just as we’re world class when it comes to
our motorcycles.
ORGANIZATIONAL STRUCTURE To make
Harley-Davidson more agile and adept
going forward, we made major changes
in our organizational structure in
2007 .
Our new, more streamlined structure pro-
motes faster decision making, greater
responsiveness to rapid change, and clearer
accountability and responsibility for results.
Karl Eberle now serves in the newly-
created position of Senior Vice President,
Manufacturing, responsible for company-
wide manufacturing strategy and operations.
Ron Hutchinson is now in the newly-created
position of Senior Vice President, Product
Development, responsible for engineering,
materials management and Parts & Acces-
sories. They bring
47 combined years of
experience at Harley-Davidson to these
key operational areas. And mid-year,
Mark-Hans Richer joined the organization in
the newly-established role of Senior Vice
President and Chief Marketing Officer, with
overall responsibility for the brand and motor-
cycle product planning, and for
U.S. marketing
and customer relationships.
2008–AN EXCITING YEAR I’m expecting a
challenging year in
2008 but it’s also going
to be an incredible year.
Anticipation is building for the opening of
the Harley-Davidson Museum this summer.
The Museum is much more than our collection
of memorabilia and bikes. It will be an
exciting destination for connecting, sharing a
road story or a meal, celebrating and fueling
Harley-Davidson dreams!
This summer,
H.O.G.® celebrates its 25 th
anniversary. So does Buell Motorcycle Com-
pany. Our police motorcycles business marks
its
100 th anniversary. Buell is also pumping
out lots of excitement and reaching new
customers with the launch of its all-new,
liquid-cooled
1125R motorcycle, delivering
a true balance of street and track perfor-
mance in the superbike category.
What else is going on? Way more than I
can cover in this letter! We’ve doubled the
size of our demo motorcycle fleet, bringing
the Harley-Davidson experience to more
riders than ever. Our event teams will be
putting on more and better consumer events
around the globe. And in July, we’ll have
a major injection of adrenaline with the
introduction of the
2009 motorcycles.
A few weeks later we celebrate our
great future, not to mention
105 years of
riding proud, with the biggest anniversary
ride in company history and four days of
celebration in Milwaukee. With the enter-
tainment and activities we’ve got in store,
our
105 th Anniversary Celebration will
deepen the passion of current customers
and ignite the dreams of new ones like only
Harley-Davidson can.
I can’t think of another consumer products
company that can lay claim to that level of
customer activity and excitement in one year.
So even though the economy has hit a
rough patch, I am very enthusiastic about our
future. With the most passionate employees,
customers and dealers anywhere, our
powerful brand and our great motorcycles, I
believe there is outstanding opportunity for
Harley-Davidson throughout the world for
years to come.
JAMES ZIEMER%
President and Chief Executive Officer,
Harley-Davidson, Inc.
“ OUR INTERNATIONAL STRENGTH IS THE RESULT OF A
WELL-ORCHESTRATED, STRATEGIC APPROACH
WE EMBARKED ON A NUMBER OF YEARS AGO TO
GROW HARLEY-DAVIDSON’S INTERNATIONAL RETAIL
MOTORCYCLE SALES FASTER THAN U.S. SALES.”
77.6 % HARLEY-DAVIDSON MOTORCYCLES $4,446.6
15.2 % PARTS & ACCESSORIES 868.3
5.3 % GENERAL MERCHANDISE 305.4
1.8 % BUELL M OTORCYC LES 100.5
OTHER 6.0
TOTAL NET R EVENUE $5,726.8
. .
. . . . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
WORLDWIDE
NET REVENUE BY PRODUCT LINE
Dollars in millions
WORLDWIDE
NET REVENUE BY REGION
Dollars in millions
73.5 % UNITED STATES $4,208.0
13.8 % EUROPE 790.2
4.0 % JAPAN 229.8
4.0 % CANADA 230.2
4.7 % REST OF WORLD 268.6
TOTAL NET REVENUE $5,726.8
. . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
In thousands, except per-share amounts 2007
(1)(2) 2006 (1)(2) 2005 (1) 2004 2003
Income statement data:
Net Revenue $ 5,726,848 $ 5,800,686 $ 5,342,214 $ 5,015,190 $ 4,624,274
Cost of goods sold 3,612,748 3,567,839 3 ,301,715 3 ,115,6 5 5 2,958,708
Gross Profit 2,114 ,100 2,232,847 2,040,499 1,899,535 1,66 5,566
Financial services income 416 ,196 384,891 331,618 305,262 279,459
Financial services expense 204,027 174 ,16 7 139,998 116,662 111,586
Operating income from financial services 212 ,169 210,724 191,620 188,600 16 7, 87 3
Selling, administrative and engineering expense 900,708 846, 418 767,157 731,750 690,492
Income from operations 1,425,561 1,5 97,15 3 1,464,962 1,356,385 1,142,947
Investment income, net 22,258 27, 087 22,797 23,101 23,088
Income before provision for income taxes 1,447,819 1, 62 4 , 240 1,487,759 1,379,486 1,166,035
Provision for income taxes 513,976 581,087 528,155 489,720 405,107
Net income $ 933,843 $ 1,043,153 $ 959,604 $ 889,766 $ 760,928
Weighted-average common shares:
Basic 249,205 264,453 280,303 295,008 302,271
Diluted 249,882 265,273 281,035 296,852 304,470
Earnings per common share:
Basic $ 3.75 $ 3.94 $ 3.42 $ 3.02 $ 2.52
Diluted $ 3.74 $ 3.93 $ 3.41 $ 3.00 $ 2.50
Dividends paid per common share $ 1.060 $ 0.810 $ 0.625 $ 0.405 $ 0.195
Balance sheet data:
Working capital $ 1,562,235 $ 1,954,956 $ 2,272,125 $ 2,510,490 $ 2,087,056
Finance receivables held for sale 781,280 5 47,106 299,373 456,516 3 4 7, 112
Finance receivables held for investment, net 2,420,327 2,280,217 1,943,224 1,655,784 1,390,737
Total assets 5,656,606 5,532,150 5,255,209 5,483,293 4,923,088
Current finance debt 1,119 ,955 832,491 204,973 495,441 324,305
Long-term finance debt 980,000 870,000 1,000,000 800,000 670,000
Total finance debt 2,099,955 1,702,491 1,204,973 1,295,441 994,305
Shareholder equity $ 2,375,491 $ 2,756,737 $ 3,083,605 $ 3,218,471 $ 2 ,957,692
(1) 2007, 2006 and 2005 results include the adoption of Statement of Financial Accounting Standards (SFAS) No. 12 3 ( R) , “Share-Based Payment” effective January 1, 2005.
(2) 2007 and 2006 results include the adoption of SFAS No. 158 , “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” as of December 31, 2006.
As of Feb. 18 , 2008, there were 90,748 shareholders of record of Harley-Davidson, Inc. common stock.